Fitch Rates Texas Permanent University Fund 2009A Bonds 'AAA'

2009-01-12 22:27:03 -

Fitch Ratings assigns a 'AAA' rating to approximately $100,000,000 of Board of Regents of the University of Texas System (the system) permanent university fund (PUF) bonds, series 2009. The bonds, which will be issued in a traditional fixed rate mode, are expected to price via negotiated sale on or about Jan. 22, 2009. Proceeds will be applied by the system to pay the purchase price of outstanding PUF debt tendered under the system's recently authorized tender program. As market conditions create an economic incentive to do so, the system will issue the series 2009A bonds and move forward with the tender offer.


At the same time, Fitch affirms the ratings on the following outstanding PUF obligations:


-- $918,980,000 fixed-rate PUF bonds at 'AAA';


-- $400,905,000 variable rate PUF bonds at 'AAA/F1+';


-- $434,600,000 fixed-rate PUF bonds, issued on behalf of Texas A&M University System, at 'AAA';


-- $400,000,000 flexible rate note (FRN) program (no FRNs currently outstanding) at 'AAA/F1+'; and


-- $500,000,000 taxable and tax-exempt commercial paper (CP) program (no CP notes currently outstanding) at 'F1+'.


The Rating Outlook on all long-term debt is Stable.


The 'AAA' rating primarily reflects the PUF's vast, highly diversified, investment holdings, which had a market value of $8.8 billion on Nov. 30, 2008 and the expertise of the University of Texas Investment Management Company (UTIMCO) which manages the financial assets comprising the PUF investment portfolio. The Texas constitution requires that funds be distributed annually from the PUF to pay debt service on PUF related obligations issued by the system and the A&M system. The system receives two-thirds of the PUF's annual distributions and the A&M system receives one-third.


The annual distributions, which are deposited to the available university fund (AUF), are made under guidelines of the system board of regents pursuant to the current endowment distribution policy of 4.75% of the average market value of the trailing 12 quarters. In cases where the PUF investments have earned in excess of the expected return plus .25%, the distribution rate shall increase to 5% of the trailing 12-quarter average.


For fiscal 2008, the distribution to the AUF from the PUF totaled $448.9 million. The system's two-thirds share represented approximately $321 million, including its share of surface income and approximately $11.3 million of investment earnings, providing solid 3.2 times (x) coverage of PUF bond and FRN debt service ($98.8 million). For fiscal 2009, the board approved total distributions to the AUF from the PUF equal to approximately $531 million.


Under the Texas constitution, the system's total PUF obligations, including bonds, FRNs and CP draws, may not exceed 20% of the cost value of the PUF at the time of issuance. As of Nov. 30, 2008, outstanding bonds and FRNs ($1.3 billion) equaled approximately 13% of the unaudited PUF cost value ($10.2 billion, excluding real estate), well below the maximum threshold. While the system, based upon current PUF book value and outstanding debt, is authorized to issue up to an additional $726.4 million of PUF bonds and notes, the system currently expects to issue just $150 million of new money CP notes during fiscal 2009. While the FRN program remains authorized, the system does not anticipate issuing FRNs, instead opting for the increased flexibility and capacity of the CP program.


The 'F1+' rating is based on the system's financial resources available to cover maximum liquidity demands. As of Nov. 30, 2008, the system identified approximately $7.8 billion of highly liquid funds (excluding bond proceeds), available within a week or less, including $1.8 billion of daily liquidity, which could be used to support variable-rate debt, including borrowings under the revenue financing system (RFS) and PUF bond programs. Assuming maximum draws under the RFS ($1.25 billion) and PUF ($500 million) CP programs, and including $1.4 billion in outstanding RFS and PUF variable-rate demand bonds, highly liquid funds would provide approximately 3.2 (x) coverage of the system's maximum weekly liquidity needs. It is recognized that UTIMCO holds additional liquid assets, on behalf of the system, to support its variable-rate programs. However, the conversion of these instruments to cash would not likely be immediate. Fitch also notes that the system has historically rarely drawn CP to its maximum authorized amount under either the RFS or PUF program and limits maximum daily rollover of CP per dealer to $50 million.


Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.








Fitch Ratings, New York

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